Book review: “Predictably Irrational” by Dan Ariely

I heard Dan Ariely speak at the AMA Research Conference in Boston last September before I read this book (Predictably Irrational: The Hidden Forces That Shape Our Decisions, Harper, 2008). He gave the audience a riveting account of his experience recovering from burns caused by the explosion of a magnesium flare. You can read the account for yourself in the introductory chapter to this book (“How an Injury Led Me to Irrationality and to the Research Described Here”). In a nutshell, Ariely questioned the conventional wisdom of the nursing staff that it was less painful overall to remove the bandages covering his burns quickly rather than gradually. Ariely eventually put this to the test with experiments involving various sources of pain and concluded that the nurses, despite the best intentions, were wrong.

In the subsequent chapters, Ariely systematically dissects our decision processes, showing again and again that most of the time we are not the rational, utility maximizing creatures found in contemporary economic theory. Ariely’s speech at the AMA conference (as I remember it) focused on asymmetric dominance. Choosing between two different but attractive alternatives is very difficult for most people. Ariely gave the example of choosing between a luxury vacation in Paris and a similar vacation in Rome. But… if we throw another alternative into the mix–say a less luxurious package in Rome–the choice suddenly becomes much easier, and a majority of people will choose the more luxurious Rome vacation. This is asymmetric dominance. The luxurious Rome vacation becomes more attractive because we can more easily compare it to the lesser package for Rome. We might not know whether the Paris package is better than the Rome package, but we definitely know that the more luxurious Rome package is better than the less luxurious package. In effect, the introduction of the inferior Roman alternative has bumped Paris out of the choice process. This topic is covered in the first chapter of the book, “The Truth About Relativity.”

This is important stuff for market researchers and marketers. Asymmetric dominance can come into play in market research studies that rely on choice-based conjoint (CBC). I’m pretty sure that I’ve designed a few CBC studies over the years where asymmetric dominance may have been at work (inadvertently, of course!).

Other chapters are equally valuable. In Chapter 5, “The Influence of Arousal,” we learn how decisions change as a function of the state of arousal. Market researchers often ask consumer how likely they are to purchase some good or service in the future. After reading this chapter, you’ll question whether the “cold” survey question can ever accurately capture what consumers will do in the “hot” purchase situation. A practical implication–consumers are more likely to give “accurate” information about what they will do when they are immersed in the buying process. There’s plenty more food for thought in chapters with titles like “Keeping Doors Open (Why Options Distract Us from Our Main Objective),” “The Effect of Expectations (Why the Mind Gets What It Expects)” and “The Power of Price (Why a 50-Cent Aspirin Can Do What a Penny Aspirin Can’t).”

Ariely writes in a personal, conversational style–you’ll not only learn something about irrationality, you’ll learn about Ariely, his family, his collaborators and students. The subjects in his experiments also get the personal treatment. Ariely describes his experiments in just enough detail to convey the systematic nature of his efforts, but not quite enough detail to convey the rigor required for sound psychological research. Taking Ariely’s accounts at face value, it’s not clear that controls such as counterbalancing for order of presentation and similar procedures for assuring internal validity were employed. Many of the experiments are conducted in natural settings. We have to take Ariely’s word for the magnitude of the effects he observes, since we don’t get enough information to assess statistical conclusion validity.

The experiments described in this book are part of a long tradition of research in cognitive and social psychological processes that goes back at least as far as Fritz Heider (The Psychology of Interpersonal Relations, John Wiley & Sons, 1958). I’m a little unsettled by the way in which this book seems to suggest that the investigation of irrationality is relatively recent and more or less exclusive to behavioral economics. Ariely has every right to focus on his own research–there’s lots of fascinating stuff here–but psychologists have been studying these processes for a long time. For some classic examples, see The Social Animal by Elliot Aronson and Mistakes Were Made (But Not by Me): Why We Justify Foolish Beliefs, Bad Decisions and Hurtful Acts by Carol Tavris and Elliot Aronson. The contribution of the behavioral economists is to extend those themes to areas involving monetary transactions.